American Express Fights Antitrust Claims at High Court

WASHINGTON (CN) – Likened to a credit card Cadillac, American Express found an ally in Justice Neil Gorsuch on Monday as it fended off antirust allegations at Supreme Court oral arguments.

“It’s just the difference between Cadillacs and Kias,” Gorsuch said. “People can choose. Do they want a high cost, high reward, a low-cost, cheaper alternative? And the two sides can compete with one another.”

The federal government and 17 states brought the underlying case in 2010 over a provision in American Express’ contracts that bars merchants from steering customers toward payment with another, cheaper credit card.

Though a federal judge found the provisions violated the Sherman Antitrust Act by reducing price competition, the Second Circuit reversed in 2016, saying the lower court failed to consider both sides of the credit card market.

Emphasizing this point Monday, AmEx’s attorney Evan Chesler noted that the key here is that the credit card market involves customers on two sides – the cardholders who sign up for the card and the merchants that accept it.

Noting that the credit card market has increased in both volume and quality over the years, Chesler said there is no evidence American Express caused damage with its anti-steering provisions.

“The product at issue here are credit card transactions,” said Chesler, of the New York firm Cravth, Swaine and Moore. “You cannot have a credit card transaction unless a consumer and a merchant come together. And the question is, what’s happened to the output of those transactions, what’s happened to the quality of those transactions and what’s happened to the price of those transactions?”

Justice Sonia Sotomayor questioned Chesler meanwhile on his claim that the anti-steering provisions are simply a step American Express takes to ensure that merchants don’t “undermine” its carefully crafted pitch to cardholders.

“I have to say if I go to a cash register and the merchant says to me, I’ll give you a 1 percent discount today if you don’t use AmEx, I sit there and think to myself, do I need the airplane rewards or the train rewards, or do I want the 1 percent?” Sotomayor asked. “And I choose differently each time depending on the nature of the transaction. But this anti-steering removes that competition.”

Representing one of the many states challenging AmEx, Ohio State Solicitor Eric Murphy insisted that the anti-steering provisions hurt consumers.

“It has restricted competition on that side of the market in the sense of they have less options,” Murphy said. “An AmEx cardholder who would prefer to have a 1 percent discount, if the AmEx cardholder uses a Discover card, merchants aren’t allowed to offer that option. So all consumers, including cardholder consumers, have less options than they would if these anti-steering rules were not in place.”

Gorsuch was perhaps the most active questioner at Monday’s hearing.

“My question is, do you have any evidence that, on a net basis, consumers pay more?” Gorsuch asked Ohio State Solicitor Murphy. “And I don’t believe you have.”

Deputy U.S. Solicitor General Malcolm Stewart backed Murphy’s arguments, but Gorsuch pointed out competing companies are still free to do what they want with their fees, regardless of any provision in American Express’ merchant contracts.

“I mean, American Express’ agreements don’t affect MasterCard or Visa’s opportunity to cut their fees, their own fees, or to advertise that American Express’ are higher,” Gorsuch said. “There is room for all of that kind of competition here.